Sun Pharmaceutical Industries Limited (SUNPHARMA) Earnings Call Transcript

Ladies and gentlemen good day and welcome to Sun Pharma's Q1 FY '26 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Dr. Abhishek Sharma, Vice President and Head of Investor Relations and Strategic Projects. Thank you, and over to you, sir.

Thank you. Good evening, and a warm welcome to our first quarter FY '26 Earnings Call. I'm Abhishek from the Sun Pharma Investor Relations team. We hope you have received the Q1 financials and the press release that was sent out earlier in the day. These are also available on our website. We have with us Mr. Dilip Shanghvi, Chairman and Managing Director; Mr. Kirti Ganorkar, CEO India Business and MD Designate; Mr. Aalok Shanghvi, Chief Operating Officer; Ms. Jayashree Satagopan, CFO; and Mr. Richard Ascroft, CEO, North America. Today, the team will provide an update on the financial performance and business highlights for the quarter, pipeline updates and respond to any questions that you may have. Before we begin the call, I wanted to bring to everyone's attention that from this call, we have renamed Global Specialty as Innovative Medicines business. We will refer to the consolidated financials for the management comments. The call recording and call transcript will also be put up on our website shortly. The discussion today might include certain forward-looking statements, and these must be viewed in conjunction with the risks that our business faces. You are requested to ask two questions in the initial round. I also request all of you to kindly send in your questions that may remain unanswered today. I will now hand over the call to our CFO, Ms. Jayashree Satagopan.

Good evening. Welcome, and thank you for joining us in this earnings call after the announcement of the financial results for the first quarter of FY '26. Our Q1 financials are already with you. Let me take you through the consolidated financial summary for the company. Sales for the first quarter of FY '26 stood at INR 137,861 million. registering a growth of 10.1% over the last year. Gross margin was favorable aided by lower material costs due to better product mix and a higher share of sales from the innovative medicines. EBITDA for the quarter was INR 43,017 million, recording a growth of 19.2% over the previous year. EBITDA margin percentage for the quarter was 31.1%. Profit before exceptional items and tax stood at INR 39,908 million, registering a year-on-year growth of 16.6 percentage. During the quarter, exceptional items accounted for INR 8,180 million, primarily towards the impairment of SCD-044 and [ GxMDL ] settlement. Netting of the provisions in the books for part of the GxMDL settlement, the balance amount has been accounted during the quarter. Effective tax rate for the quarter was 24.3% vis-a-vis 16.1% in Q1 FY '25. Adjusted net profit for the quarter was INR 29,961 million, which is up by 5.7% from the corresponding period in the last year. Reported net profit for the quarter was INR 22,786 million after the exceptional items compared to rupees INR 28,356 million for Q1 of FY '25. ForEx gain during this quarter was INR 2,290 million, and this compares to a loss of INR 505 million during the same period last year. Other income during the quarter was INR 4,645 million lower than last year which included interest on income, income tax refund during the first quarter of FY '25. Our balance sheet continues to be strong with a net cash position of INR 3.1 billion at the consolidated level, which is invested in Board approved securities and is earmarked for future investments. Adjusted EPS for the quarter was INR 12.50 per share. With this, I would like to hand it over to Kirti, who will share the performance of our India business.

Yes. Thank you, Jayashree. I shall take you through the performance of our India business. For Q1, the sales of formulation in India were INR 47,211 million, recording a growth of 13.9% over Q1 last year. India Formulations sales accounted for 13.2% of total consolidated sales for the quarter. Sun Pharma is ranked #1 and holds 8.3% market share in over INR 2,302 billion Indian pharmaceutical market as per AIOCD/Pharmarack MAT June-2025. Corresponding market share for the previous period was 8%. For the quarter ending June '25, we grew higher than IPM, and we have done well across all major represented therapy areas. We are happy to note that MAT basis, the sales growth has been led by volumes and new product launches versus the IPM growth, which is predominantly price led. As per SMSRC, March, June 2025 report, we continue to be the #1 brand company based on the prescription volume. Sun Pharma is also ranked #1 by prescription with 13 different doctor categories. For Q1 FY '26, the company launched 5 new products in India. I will now hand over the call to Rick for the update on the U.S. business.

Thank you, Kirti. I'll provide an update on the performance of our U.S. business. Our overall U.S. business grew by 1.4% to $473 million for the quarter. This growth is driven by our Innovative Medicines portfolio with all of our growth products contributing, including Ilumya, Cequa, Winlevi and Odomzo, but offset by a decline in our generics business due to additional competition in certain products. U.S. accounted for 29.3% of consolidated sales for the quarter. In Q1, we launched 4 regional products in the U. S. Earlier this month, Sun Pharma announced the launch of LEQSELVI in the United States for the treatment of severe alopecia areata. This launch marks a major milestone towards strengthening our Innovative Medicines portfolio. LEQSELVI represents a new and effective treatment option in the U.S. for severe alopecia areata, benefiting eligible patients, health care providers and the broader health care system. We also announced Sun Pharma has settled patent litigation with Incyte results -- relating to LEQSELVI which renewed the overhang of litigation from the product launch. I will now hand over the call to Mr. Shanghvi.

Thank you, Rick. I will provide an update on the performance highlights of our other businesses as well as give you an update on our R&D initiatives. Our branded formulation revenues in emerging markets were $298 million, up by 5.1% over Q1 last year. The underlying growth in constant currency terms was 4%. Emerging Markets accounted for 18.5% of total consolidated revenue for Q1. Amongst the larger markets in local currency terms, Romania, Russia, South Africa have done well. Formulation revenues in the rest of the world were $219 million, up 15.5% over last quarter FY '25, Rest of the World markets account for approximately 13.6% of consolidated revenue. In Q1 FY '26, our Global Innovative Medicines sales were up 16.9% to reach $311 million. We continue to invest in building an R&D pipeline for both the Global Generics and the Innovative Medicines businesses. Consolidated investments towards R&D for Q1 FY '26 stand at INR 9,029 million or 6.5% of sales. This includes a charge of INR 1,362 million on account of SCD-044, which is reflected in exceptional items. Sun Pharma discontinued clinical trials of SCD-044 and has no further plans for development of SCD-044. Excluding the charge, R&D expenses for the quarter stood at INR 7,667 million or 5.6% of sales. Innovative R&D accounted for 41% of our total R&D spend and stands at 11.8% of the Global Innovative Medicine sales for the quarter after excluding exceptional charges. Moving on to updates on Global Innovative Medicines. Sun Pharma's 2 Phase III clinical studies evaluating Ilumya in active psoriatic arthritis met their primary endpoint. These results support the potential regulatory submission of Ilumya in the U.S. and in other markets. During the quarter, our partner, Philogen, decided to voluntarily withdraw the application for marketing authorization to the European medicine agencies for Nidlegy. They plan to refile the application at an appropriate time when they have the requisite information. Sun Pharma has completed its acquisition of Checkpoint Therapeutics. The acquisition adds Unloxcyt to Sun Pharma's innovative portfolio. Unloxcyt is the first and the only FDA-approved PD-L1 treatment for advanced cutaneous squamous cell carcinoma. We are planning to launch Unloxcyt in the U.S. in second half of FY '26.

That ends the readout. Operator, if we can open the queue for Q&A.

[Operator Instructions]. The first question is from Kunal Dhamesha from Macquarie.

The first one on the Ilumya successful trial on PSA. Could you provide some time line? I know it's at a filing stage, but how should we look at when the filing could happen? And then when can we expect -- what is the potential time line year for the developed market like U.S., Europe? And also, if you could provide some data points in terms of the proportion of patients reaching ACR 20, 50 or 70, at least 24 that would be great.

Yes. See, the plan is to present the data or publish the trial result in a reputed journal before we start publicly talking about that. And I think the regulatory team is working with the CRO to ensure that as soon as we have all the requisite information because we have currently only the top line data but once we have the requisite information for filing, the plan is to file. Hopefully, we should be able to file the product before the end of this calendar year. But that's not something that I am 100% sure about, but that's [indiscernible].

And the second question is regarding, we had suggested that there would be incremental cost related to launch of LEQSELVI and Unloxcyt in FY '26, which we had pegged at around $100 million. So have you seen that impact in this quarter? And will it be more spread across the quarters? Or will it be high at the time of launch and then comes down from there on?

So in addition to the actual cost out go, there will also be amortization of the cost of the acquisition. And that will start only when the product is in market. So we will see Unloxcyt from -- I mean, sorry, LEQSELVI from this quarter. But I think our estimation is that the overall cost of $100 million we will be sustaining during the year. You don't see that much in the first quarter, but it will start coming.

Sir, just a clarification. So this $100 million includes both the cash and amortization charge or it's just spending and then amortization would be separately?

No, I think it will be the direct cost, $100 million. Amortization will be separate.

The amortization has already been factored in our guidance which we have given.

But we don't give profit guidance.

No, we don't give that. Overall, we told...

Next question is from Neha Manpuria from Bank of America.

My first question is on LEQSELVI. Now that we have launched the product, how should we look at -- I mean, what would be the key milestones in terms of traction of the product? Because if you look at the other 2 competing products, we've seen very differing trends from IQVIA in terms of the prescription trends. If you can just help us in terms of when do you think this gets to a point where you're comfortable with formulary coverage? How much time would that take roughly?

I can take the first one.

So we just launched LEQSELVI a couple of weeks ago. We're very encouraged by the early results. We've seen good receptivity with health care professionals and patients with our messaging. We already have patients that are going through our hub, which is our support program, and we already have our initial commercial prescriptions. We have -- we're in ongoing discussions with payers, which have been very positive. And as I said, we're encouraged by what we've seen with the first 2 weeks in the market.

And, Rick, in your view, when you think this starts converting into revenue contribution once you see the formulary coverage? Would you take usually in your chance, 9 months, could it be a year out? Or if you could start seeing the contribution much faster than that from a revenue ramp-up effect?

If we plan, we will see some impact yet this year, this fiscal year.

Understood. And my second question is on the ROW market. That seems to have seen a very strong growth in the quarter. Is there anything -- any milestone income, anything in that number? What drove that strong growth in the RoW market ?

Could you repeat the question?

No, I think she is asking about the rest of the world market. So I think the overall -- there's no specific event that I can point to. But there may be some onetime sales, which may also be responsible. But the overall guidance that we have given includes the performance of the emerging markets and the rest of the world market.

Understood. I'm sorry, if I could squeeze in one more question. On the MFN, based on your discussion, what is the sense of the likelihood of [ EMEA ] getting included in the demonstration project and therefore, negotiations on that. Any color on that?

Yes. Maybe, Rick, you can respond because I'm away from market that way.

Yes. I would say we have no further information on the MFN executive order. We have not had any dialogue with any other government. We've not been contacted with respect to any products in our portfolio.

Next question is from Damayanti Kerai from HSBC.

My question is on the U.S. market. So while we are still waiting for the details -- official details to come on the tariff part. But from your side, do you have any thought about improving your manufacturing footprint in the U.S.

Maybe I can start. We actually have a significant footprint in the United States already. And at this time, we have no plans to move further manufacturing to the U.S.

If you can indicate broadly what percentage of sales come from your U.S. plant at this point of time? That will be helpful.

That we don't disclose, Damayanti.

Okay. But you think the current capacity is good enough for you in case you need to onshore manufacturing and you have no immediate plan to add on there?

Yes, I think that would be the right assumption.

Okay. And my second question is on Revlimid opportunity. So does 1Q number reflect meaningful contribution from that product? And if you can also comment on the pricing for that product?

Rick, [indiscernible].

Go ahead, I apologize.

No, no please. I wanted you to respond.

I would say our generics business space is up and down quarterly due to lenalidomide. If we remove that impact on the U.S. generic business is down quarter-over-quarter and year-over-year. We did see continued pricing pressure from lenalidomide.

Okay. But does 1Q has significant contribution from that product?

Yes,. Yes. So Damayanti Q1 lenalidomide sales were moderately higher versus Q4. Moderately.

[Operator Instructions]. The next question is from Bino Pathiparampil from Elara Capital.

Good evening and good morning. Couple of questions. One, Dilip bhai, were you happy about the top line results from the Ilumya psoriatic arthritis study? Or could it have been better? I'm asking this because we have seen ACR 20 numbers which have confined, but in ACR [ 17 ] maybe it didn't show much improvement.

So I think when you look at the numbers, you also need to look at the closing what we have in no induction dosing as well as only 2 injections. So I think -- it's very good result considering the dose and the overall safety profile. The doctors with whom we have discussed understand the product because it's a class that they are familiar with. So we are comfortable with these numbers.

Understood. Yes. And just a question on the one-off settlement that you have done. There was this $200 million settlement of Taro. From your footnotes I understand that you have recognized only about [ $2 million ] in this quarter in Q1. So should I assume that the balance would be recognized in Q3, et cetera, of exceptional item?

Let me take this question. Out of the $200 million, we were carrying a provision for part of it in our books from prior years. So netting off that, the balance has been fully accounted in this quarter, and therefore, we would not see any further exceptional item on this account in the forthcoming quarter.

Next question is from Shashank Krishnakumar from Emkay Global.

My first question was on the domestic business. I think this quarter, we've seen a 14% growth on a relatively higher 1Q base. And last few quarters, also if I look at our growth rates, it's not a significant divergence but a marginal divergence versus what secondary sales growth trends would indicate. So just wanted to understand if the OTC portfolio is now becoming a major part of our domestic piece and probably there are a few sales channels which are not getting captured. Is it what is driving this marginal growth divergence versus what we see in secondary sales trend?

The majority of the growth is coming from prescription business. It's not from a consumer business.

Okay. Got it. So my second question was, again, last quarter, we had indicated that we are looking to launch a few new products in the diabetes and weight loss management space in the domestic market going forward. So just wanted to understand how this will sort of reshape the income and treatment regimen, particularly for diabetes because while the incremental opportunity size probably is being talked about. So just wanted to understand how the current standard of care treatments could get disrupted when some of these new launches come in starting next year?

You're talking specifically of GLP-1s or in fact GLP-1 effect on existing products [indiscernible].

So I think if you look at that way globally, there is a lot of experience about the impact of GLP-1 on sale of existing product, both DPP-4 as well as SGLT. So we haven't seen any significant degrowth in those. As a matter of fact, post generics, I think there is higher increase on the. So I think that is repeated in India, there should be no problem.

The next question is from Surya Narayan Patra from PhillipCapital.

Sir, taking this GLP point further, could you give some sense about your participation in the first wave of commercialization of GLP product in Canada and Brazil?.

Yes. I think maybe, Aalok, you want to respond, but I don't know whether we share this information.

I think Canada, Brazil, we have not shared the information, but what I can share is about in India, we will be in the first wave of launch here. So we are all working in that direction so that we come first to the market.

Yes. This is helpful. And Dilip my second question was about the cash deployment that you are having in the annual report that you have mentioned. So in the recent past, much of the investment, what we have done, it is towards the specialty portfolio. And this time that you are also indicating about your interest beyond that. So could you give some clarity about that? What are -- which are the areas that you'll be interested in spending and all that?

No. I think we've indicated that we'll continue to look for opportunities to strengthen our product portfolio in 3 therapy areas that we are interested in, ophthalmology, dermatology and onc-derm.

Okay. Okay. And irrespective the market.

What is that?

Irrespective of the market, not necessarily U.S. or India.

Yes. I mean, generally, these assets is easier to do a global deal.

Okay. Sir, I was just looking at the China development also. We know that we have Ilumya, Ilumya [indiscernible] through partner, but we have now created our own subsidiary also. If you can add some color to those kind of development and interest.

No, I think it's an option that we are creating without any specific plan at this point.

Next question is from Vishal Manchanda from Systematics.

With respect to generic Revlimid, we are almost halfway through into CY '25, and there are orders to go before the exclusivity expires. So is it fair to assume that you would have sold 50% of your allocated volume quota for the year?

We don't give...

We don't provide...

Yes, Rick, continue.

I was going to say we don't provide product-specific guidance.

Okay. So like do we expect our U.S. Formulation run rate to improve from here in the coming quarters?

Again, we don't provide that level of guidance.

Okay. And just one more. So like I could see in your annual report that there's a sharp jump in the -- with respect to India, there's a sharp jump in the neuropsychiatry therapy revenues on a Y-o-Y basis, a very sharp jump. So is this almost INR 1,000 crores, in fact, on a Y-o-Y basis?

No, no, no. That's not correct.

I think CNS growth is also in line with India growth. If I remember correctly, it is 11% to 12% range.

And just one final one on the tax rate, if you could give a number, what should be the tax rate this year?

For the full year, we can consider around 25%.

Got it. And it should be there going forward around 25%?

Yes.

The next question is from Vivek Agrawal from Citigroup.

My question -- first question is related to ODOMZO. So although it's a relatively smaller product in your Global Innovative Medicine pipeline and the product was there in the market for quite some time. And in the last couple of years, there is a sharp pickup, right? And the product has got a decent market share against the competition anyways, right? So what has changed? I just want to understand.

Yes, at least in the U.S., I can comment. We continue to see nice growth of ODOMZO. It's really a recognition from clinicians of what the product can bring and also strong execution from our sales and marketing teams.

But the product was there in the market, right, from 2017, '18, right, to '18, '19, right? So is it in the last couple of years, so is there any better coverage or is it a better sales force behind the product? So have you changed anything, right, so that has resulted in a sharp pickup?

I definitely think there's been improvement in execution with our sales team. I think also it's taken some time to convince loyalists to give the product a try. And once they give it a try, they stick with it.

Understood. And a related question with Unloxcyt, is it fair to assume that the channel as well as the prescribers are more or less same for ODOMZO as well as Unloxcyt?

There is overlap. It's not 100% overlap, but there is overlap between the customers, which will be something we take advantage of from a sales and marketing perspective.

Understood. So just one more question on LEQSELVI, right? If you look at the competing molecules like Olumiant, right, they have a restrictive coverage like prior authorization, limited quantity, et cetera. So even for LEQSELVI, are you expecting similar kind of coverage? Or will that be enough for the pickup in this product?

Yes. I think with all 3 products, we'll continue to see prior authorizations. Based on our ongoing negotiations, we do expect to have good coverage for LEQSELVI versus the competition.

So you are expecting a better coverage for LEQSELVI against the competition?

I think we're saying we expect at least parity coverage versus the competition.

Okay. And just -- and what is going to help you in, let's say, priority coverage over the competition?

I think really the profile of the molecule, we know from message testing that both clinicians and patients really prefer what LEQSELVI has to offer, particularly from a speed perspective. And from the discussions with payers, they've been encouraged by the data we've shown them as well.

Next question is from Kunal Dhamesha from Macquarie.

Just a logistic question. So the small onetime kind of revenue that we are suggesting in RoW, is it part of Innovative Medicine business? Or is it part of the non-Innovative Medicine business?

It's a mix of both, Kunal.

But innovative business, we've given the detail, what is the growth [indiscernible] but it is still included in the separate number that we've given for innovative business -- Global Innovative business.

So just to clarify, the $311 million, does it include any milestone payment this quarter?